British American Tobacco 'actively' looking to monetise ITC stake

British American Tobacco plc (BAT plc) is “actively” working on monetising some of its shareholding in the diversified ITC, but will keep a level of “influence” in the Kolkata-headquartered firm.

BAT is the largest shareholder in the cigarettes-to-hotel major with a holding of 29.03 per cent, worth Rs 1.5 trillion.

On Thursday, the maker of Dunhill and Lucky Strike said while announcing its results for the year ended December: “We continue to pursue all opportunities to enhance balance sheet flexibility and, as part of this, we regularly review our stake in ITC.”

“We recognise that we have a significant shareholding which offers us the opportunity to release and reallocate some capital. Our shareholding in ITC has existed in one way or another since the early 1900s and is subject to numerous share capital changes and regulatory restrictions,” BAT Chief Executive Tadeo Marroco said in the press release.

He added: “We have been actively working for some time on completing the regulatory process required to give us the flexibility to monetise some of our shareholding.”

The news sent shares of BAT soaring by more than 7 per cent. The ITC stock, on the other hand, slipped more than 4 per cent.

In a post-results call, Marroco told investors: “We want to keep a level of influence in ITC, which is transforming itself.”

Based on local legislation, he said, a minimum of 25 per cent shareholding was required to keep veto rights. “This means that given the fact we have above 29 per cent, there is space for us to reduce our shareholding.”

However, Marreco said it was “very difficult” to give a timeline and indicated the process was complicated.
He said the company had been working for some time with people on the ground closer to the authorities, mainly the central bank, and with the help of ITC trying to reconstruct the history of shareholders of BAT, which dates back a hundred years.

BAT, which had borrowings of 39.73 billion pounds on December 31, 2023, has been actively deleveraging and opted against a buyback programme last year.

It had been facing questions over its stake in ITC since.

BAT aims to deleverage further towards the middle of 2-3x adjusted net debt to adjusted EBITDA over the medium term. On Thursday, the company reported a loss of 15.8 billion pound compared to a profit in 2022 of 10.5 billion pound, driven by impairment charges of US cigarette brands.

Marreco told investors that it was very supportive of its shareholding in ITC. "It is a fantastic company, well-run, well managed, very fast growing company in a very fast growing market with the most populous country in the world."

He also pointed out that it has been accretive for BAT in terms of earnings and cash because it has a very good policy in terms of dividend payout. Also he pointed out that the share price of ITC had doubled in the last three years.

ITC is in the process of demerging its hotel business. To a question on whether ITC would be disposing of its holding in the proposed hotel company, Marreco said, "There is no strategic intent from BAT to be a minority shareholder of a hotel (company) in an Indian market."

The decision of what to do with the stake would be taken by the board when it comes to the time, he added.